In today's world, electronic funds transfers have become increasingly common. Where a single financial institution has an account relationship with both a transferor, i.e., provider, and a transferee, i.e., recipient, of transferred funds, completing an electronic transfer of funds is a relatively simple task. This is because the single financial institution involved has sufficient authority to accomplish all the steps necessary to complete the transfer, e.g., both the authority to debit an account of the transferor and the authority to credit an account of the transferee.
Yet, in many situations, no single financial institution exists that has these necessary account relationships with both the transferor and the transferee. The more common case is that the transferor's financial institution is distinct from the transferee's financial institution, creating a need for the establishment of a relationship between these institutions. For example, a transferor may have an account relationship with a first institution while a transferee has an account relationship with a second institution. The first institution, however, may not have any established relationship with the second institution.
To address this need, it has become common for financial institutions to employ one or more intermediary, i.e., correspondent, institutions. In such cases, the intermediary institution provides a mechanism through which a transferor's institution and a transferee's institution may reliably ensure the debiting of an account of the transferor, the crediting of an account of the transferee, and appropriate balancing transactions between the institutions, i.e., the completion of the electronic funds transfer. Thus the intermediary institution effectively bridges the gap between the institutions that have the relationships with the transferor and the transferee.
Within the United States, most independent financial institutions maintain an account relationship with one of the Federal Reserve Banks, and are thus referred to as Federal Reserve member institutions. Through the Federal Reserve Bank system, Federal Reserve Banks are able to serve as intermediary institutions, thus providing the bridging function among Federal Reserve member institutions. Accordingly, where a transferor has an account relationship with a first institution that also has an account relationship with one of the Federal Reserve Banks, the first institution may cooperate with the Federal Reserve Bank to accomplish a transfer of funds to any other institution that also has a relationship with any of the Federal Reserve Banks. Thus, the transferor may electronically transfer funds to any transferee so long as that transferee also has an account relationship with a Federal Reserve member institution.
To facilitate automated processing of such transactions, the Federal Reserve Banks have established a communication protocol known as the Fedwire Funds Transfer Protocol. This protocol is described in the Fedwire Funds Transfer Reference Card, published by Federal Reserve Financial Services effective Jul. 15, 2002 and is hereby incorporated by reference for background purposes. In addition, most member institutions have developed infrastructures within their institutions to automate and simplify the processing of Fedwire transactions. For example, member institutions may integrate their internal accounting systems with the Fedwire messaging, wiring, and settlement instructions to eliminate manual ledger entering, e.g., debiting and crediting, and translating of messages.
Unfortunately, not all institutions are able to, or choose to, use one of the Federal Reserve Banks as an intermediary. For example, financial institutions located entirely outside the United States rarely enjoy status as members of the Federal Reserve system. Similarly, a small but significant minority of institutions within the United States maintain no account affiliation with any of the Federal Reserve Banks. As a result, such institutions may not possess an established infrastructure or may not otherwise be equipped to efficiently use the Fedwire Funds Transfer Protocol.
Another drawback of the Federal Reserve system is that it does not facilitate provision of meaningful customer service when transferring funds from a member institution to a non-member institution. Fedwire does not provide any mechanism for tracking and reporting on the status of transactions once they have cleared the Fedwire system. For example, where a transferor institution desires to transfer funds through Fedwire to another U.S. institution, e.g., so that the second U.S. institution may be able to accommodate a further transfer to a foreign institution, the use of Fedwire will effectively insulate the transferor institution from the foreign institution. Put another way, when a transferor institution relies on Fedwire, no standardized or automated mechanism exists for the transferor institution to acquire information regarding the status of the terminal portion of the transfer (the portion of the transfer from the second U.S. institution to the foreign institution). In such cases, transferors who may have no relationship with the ultimate transferee institution may not have access to any convenient mechanism for investigating where or why a transfer failed. This difficulty can be significant where the transferee institution is located in a foreign country.
In many cases, financial institutions that cooperate to accomplish electronic funds transfers charge fees for their services. In some cases, it may be desirable that such fees be waived, refunded, or credited, either wholly or partially, or that other rewards be offered based on a cooperating institution's compliance with a prescribed set of criteria, such as transaction volume, transaction frequency, membership, affiliation, use of a desired protocol, and the like. As financial institutions increase the extent to which they engage in electronic funds transfers, it becomes increasingly important to distinguish those electronic funds transfers that may participate in such incentive offerings from those that are exempt from participating in such incentive offerings. As used herein, the phrase “participating transfer order” refers to an electronic funds transfer order that enables one or more of the associated institutions to substantially participate in incentive offerings due to compliance with prescribed criteria such as those mentioned above. Where use of a specific protocol or messaging system enables an institution to substantially participate in incentive offerings, that system or protocol is described as a “participating electronic funds transfer protocol.” Accordingly, as used herein, the phrase “participating transfer” refers to an electronic funds transfer that substantially qualifies for incentives due to its compliance with prescribed criteria such as those mentioned above.
Contrariwise, where use of a specific protocol or messaging system causes the sending institution to be substantially excluded from incentive offerings, that system or protocol is described as an “exempt electronic funds transfer protocol.” Accordingly, as also used herein, the phrase “exempt payment request” refers to an electronic funds transfer request that causes the transferor, i.e., sending, institution to be substantially excluded from incentive offerings due to its use of an exempt electronic funds transfer protocol. Similarly, as used herein, the phrase “exempt transfer” refers to an electronic funds transfer that substantially precludes incentives due to its use of an exempt electronic funds transfer protocol.
It should be noted that individual countries, or groups of countries, may have an established infrastructure, and/or a standardized mechanism, for accomplishing electronic funds transfers among financial institutions. For example, in the United States, financial institutions predominantly rely upon the Fedwire Funds Transfer Protocol discussed above to accomplish money transfers among financial institutions where both the transferor institution and the transferee institution are Federal Reserve member institutions. Use of the Fedwire Funds Transfer Protocol generally precludes participation in incentive offerings (i.e., Fedwire is an exempt electronic funds transfer protocol). Use of the Fedwire Funds Transfer Protocol does, however, provide for settlement of the transaction. Consequently, when the Fedwire system is used, messaging and settlement occur simultaneously with the sending of the Fedwire message, and no intermediary institution, other than the Federal Reserve Banks, is involved.
As shown in FIG. 1, transfers accomplished using the Fedwire payment system 100 typically involve a transferor institution 110 and a transferee institution 130. Transfers accomplished using the Fedwire payment system 100 may also involve one or more of the Federal Reserve Banks acting as an intermediary institution 140. Typically, a transferor 101 communicates a request with corresponding value 105 to a transferor institution 110. It should be noted that the value may be delivered by the transferor 101 to the transferor institution 110 as cash, commercial paper, or sufficient information to identify an account from which sufficient funds may be drawn. In addition to delivering funds, or identifying the source of funds, to be transferred, the transfer request 105 typically identifies a transferee institution 130, a quantity of funds to be transferred, a transferee 190, and may also identify a specific transferee's account 190 at the transferee institution 130.
In response to the transfer request 105, the transferor institution 110 may retrieve information from a database 111, such as a banker's almanac or other similar database, to identify and select an intermediary institution 140 that has an account relationship with the transferee institution 130. Using this information, the transferor institution 110 may initiate the transfer through the appropriate intermediary institution 140 using whatever protocol the intermediary institution 140 requires, e.g., the Fedwire protocol, by communicating one or more payment order 115 to the intermediary institution 140.
Based on the payment order 115, the intermediary institution 140 provides value 135 to the transferee institution 130, and the transferee institution 130 provides a corresponding amount of value 145 to the transferee 190. It should be noted that value may be provided by delivering cash, issuing commercial paper, crediting an account of a recipient, or other means known in the art.
As discussed herein, there are a variety of transfer systems and associated communication protocols currently in use throughout the world, e.g., Fedwire, SWIFT, CHIPS, ACH. In general, these transfer systems and/or protocols allow financial institutions to transfer funds on their own behalf or on behalf of their customers. Such transfers may result from, for example, trades of federal funds and other interbank transactions, purchases, sales of securities, or time-sensitive payments. Although the Fedwire system accommodates transfers by telephone and other conventional forms of communication, most transactions are accomplished through on-line communications using computer systems. For more information on the Federal Reserve system, see The Federal Reserve System—Purposes and Function, Eighth Edition, December 1994 (Library of Congress 39-26719), which is hereby incorporated by reference for background purposes.
While domestic electronic funds transfer systems and protocols such as Fedwire are used extensively to accomplish electronic funds transfers within their associated networks of affiliated institutions, e.g., members of the Federal Reserve system, they do not adequately accommodate transfers of money among financial institutions where the transferor financial institution and the transferee financial institution are not affiliated with such a network of institutions, particularly in the case of international funds transfers. In addition, many domestic electronic funds transfer systems do not typically provide any rewards, rebates, refunds, credits or other types of incentives for their use. Thus, financial institutions using domestic transfer systems such as Fedwire are typically limited to conducting only domestic, exempt electronic funds transfers.
As used herein, the term “domestic electronic funds transfer” refers to an electronic funds transfer where both the transferor and the transferee and/or their respective financial accounts and/or financial institutions are situated within a single nation (e.g., the United States). Similarly, as used herein, the terms “domestic electronic funds transfer protocol” and “domestic electronic funds transfer system” refer to systems and protocols for accomplishing domestic electronic funds transfers (e.g., Fedwire and its counterparts operated within the United States).
To facilitate transfers of money among financial institutions where it is impossible or undesirable to accomplish transactions using only a single domestic and/or exempt system such as Fedwire (e.g., where the transferor institution and the transferee institution are located in different nations and/or where the transferee institution otherwise discourages or precludes use of Fedwire or any other domestic or exempt protocol), various international and/or participating electronic funds transfer systems have been developed. For example, the Society of Worldwide International Financial Telecommunications has developed a secure communication system utilized among institutions, known as the SWIFT messaging system (protocol). Many foreign financial institutions utilize the SWIFT protocol because it facilitates, and is widely accepted for conducting, international transfers. In addition, many institutions also desire to use the SWIFT protocol to gain access to incentives not available in conjunction with Fedwire (i.e., SWIFT is a participating electronic funds transfer protocol).
It should be noted, however, that unlike Fedwire, many funds transfer systems and/or protocols may not necessarily provide for settlement, i.e. may not include payment to balance the funds transfer. For example, SWIFT is a purely messaging protocol and does not currently provide settlement capability. Accordingly, when a transferor institution sends a SWIFT message to an intermediary institution or directly to a transferee institution, the transferor must also provide a means for balancing the transfer, i.e., must provide some form of value to the transferee institution. As used herein, electronic funds transfer protocols that provide for settlement are referred to as “settling protocols,” and electronic funds transfer protocols that do not provide for settlement are referred to as “non-settling protocols.”
As briefly mentioned above, in addition to facilitating international transfers, use of the SWIFT protocol may enable financial institutions to access various incentives. For example, in accordance with a rebate process known as a benededuct, intermediary institutions using the SWIFT protocol may rebate a portion of the fees charged to the other institutions if, for example, a pre-determined transaction volume through the intermediary institution is reached. While it should be noted that a wide variety of incentive mechanisms are possible, an exemplary scheme shifts part or all of the liability for the fees associated with a particular transfer from the transferor institution to the transferee institution. In accordance with this scheme, fees charged by the transferor institution may be collected by the intermediary institution via automatic deduction from the proceeds to be paid to the transferee. Other schemes may enable the transferor and/or transferee institutions to share in the fees collected by the intermediary institution. Thus, financial institutions using such incentive providing transfer systems are participating institutions, and the transfers they conduct are participating transfers. It should be noted once again, however, that the Fedwire system does not accommodate such sharing of fees among the participating institutions, and is, thus, an exempt funds transfer system.
Typically, financial institutions adopt a single electronic finds transfer protocol and develop their infrastructures to support use of that protocol, e.g., Fedwire. Despite the advantages offered by the SWIFT system and other participating systems, the vast majority of financial institutions in the United States have adopted and established infrastructures based on the Fedwire protocol and have elected to not automate their use of the SWIFT communications system or any other incentive-offering system. Thus, these institutions typically may automatically transmit only exempt electronic funds transfer orders. Moreover, often as a result of insufficiently trained staff or under-developed infrastructures, many of those institutions that could otherwise manually issue participating transfers, nevertheless, fail to comply with formalities, e.g., they fail to properly prepare SWIFT-formatted payment orders, causing those transfers to also be non-participating, i.e., exempt, transfers.
To effect an international transaction in the most advantageous manner, it is typically necessary or desirable to use an intermediary institution that is both situated in the country of the transferor institution and equipped with an international network. Most major international institutions, and domestic intermediary institutions with full international networks and capabilities, however, have payments/communications software and hardware that are based on, and therefore require use of, a participating protocol, e.g., the SWIFT protocol. Thus, these institutions are not equipped to accommodate common exempt or domestic transfer protocols such as Fedwire. For this reason, it is currently difficult and inefficient for financial institutions in the United States who may have adopted and established infrastructures based on an exempt domestic protocol such as Fedwire to use a participating (e.g., SWIFT-based) intermediary institution to accomplish international transfers. As a result, with respect to international payments or transactions with an international connection (i.e., the transferee is outside the country of the transferor), exempt institutions typically cannot adequately access the processing capabilities, favorable cost/pricing, reconciliation services, inquiry services, and/or other advantages typically enjoyed by other intermediary institutions, placing exempt institutions at a disadvantage relative to participating institutions.
Accordingly, it would be advantageous to have a system and method for facilitating electronic funds transfers that would permit a transferor's institution to use its preferred electronic funds transfer system and/or protocol while also accommodating use of an appropriate funds transfer protocol and/or system according to the preferences of an intermediary institution or a transferee's institution. It would further be advantageous to have a system and method that would enable financial institutions transmitting exempt funds transfers to continue to use their current exempt funds transfer infrastructures, e.g., Fedwire, while nevertheless enjoying the benefits of participating transfers. It would further be advantageous to have a system and method for facilitating electronic funds transfers that would accommodate an exempt payment request while accessing the benefits associated with participating payment orders by including the ability to automatically generate participating payment orders based at least in part on the exempt payment request. It would further be advantageous to have a system and method for facilitating electronic funds transfers that would accommodate use of non-settling protocols by providing a convenient means for settling such transfers.